TMI Blog2022 (8) TMI 69X X X X Extracts X X X X X X X X Extracts X X X X ..... e persons including Corporate Debtors and Personal Guarantors shall be the National Company Law Tribunal having territorial jurisdiction over the place where the registered office of the corporate persons locate. Hence, the insolvency resolution process is to be initiated before the Adjudicating Authority within whose territorial jurisdiction registered office of the Corporate Person is located. The provision under Section 60(1) makes it clear that the residence of Personal Guarantor is not taken into consideration when proceedings against the Personal Guarantor are initiated - The personal guarantors as used under Section 60(1) are personal guarantors irrespective of the fact as to whether they are Indian citizen or foreign nationals. In event for a Corporate Debtor a personal guarantee has been given by a person who is residing outside of India or is a foreign national, in event personal guarantee is accepted, he shall be bound by the personal guarantee. Further, there is no indication in the statutory scheme that a Personal Guarantor who has given guarantee to a Corporate Debtor can escape from his liability under the Guarantee Deed only for the reason that he has after exe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... person , [Justice M. Satyanarayana Murthy] Member (Judicial) And [Barun Mitra] Member (Technical) For the Appellant : Mr. Dhruba Mukherjee, Sr. Advocate with Mr. Raja Ratan Bhura and Mr. Shwetank Singh, Advocates For the Respondents: Mr. Ashwini Kr. Singh, Mr. Joydeep Mukherjee, Advocates for State Bank of India. Ms. Rubina Khan, Advocate with Mr. Prashant Jain for Interim Resolution Professional JUDGMENT ASHOK BHUSHAN, J. These two appeals arises out of same proceedings initiated by State Bank of India under Section 95 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as I B Code ) against the Appellant as Personal Guarantor of the Corporate Debtor M/s Ess Dee Aluminum Limited. 2. Company Appeal (AT) (Insolvency) No. 807 of 2021 has been filed against the order dated 03.08.2021 passed by the Adjudicating Authority (National Company Law Tribunal), Kolkata Bench, Kolkata in C.P. (IB) No. 54/KB/2020 by which order on an application filed under Section 95 Sub- section (1) of the I B Code by the State Bank of India, the Adjudicating Authority appointed Mr. Prashant Jain as Resolution Professional and directed him to make recommendations ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Singapore so as to initiate insolvency resolution process against the Appellant who is citizen of Singapore. The Adjudicating Authority has acted beyond the scope of the Code and its action of admitting the Section 95(1) application is ultra vires. It is submitted that for the execution of the Deed of Guarantee, the Respondent is at liberty to initiate necessary proceedings for specific performance of the contract or initiate arbitration and raise their claims accordingly. However, resort to the I B Code cannot be taken since the Adjudicating Authority has no jurisdiction to entertain petition against a foreign citizen. While the liability arising from the Deed of Guarantee does not extinguish but the said liability cannot be enforced by way of proceedings under I B Code. 7. Shri Ashwini Kumar Singh, learned counsel appearing for State Bank of India submits that the Company Appeal (AT) (Insolvency) No. 807 of 2021 has become infructuous in view of the subsequent order passed by the Adjudicating Authority dated 16.06.2022. It is submitted that the Appellant was given due opportunity by the Adjudicating Authority and notice was issued to the Appellant by the Adjudicating Authorit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have perused the impugned order dated 03.08.2021, Para 7 of the judgment which is alleged to contain finding of default reads as follows:- 7. The applicant has clearly brought it out in its application coupled with admissible evidence that the personal guarantor has committed default in making payment of the cash credit facility along with interest to the Applicant for which he has given the personal guarantee to the Applicant on behalf of EDAL. 11. In Para 7 of the judgment of Adjudicating Authority only noticed the contents of the application, what has been noticed is that the applicant i.e. State Bank of India has clearly brought it out in its application that personal guarantor has committed default in making the payment of the cash credit facility. The said para cannot be read as recording any finding by the Tribunal regarding default. When the Adjudicating Authority has appointed Resolution Professional who has to make recommendations, no finding can be recorded regarding default before appointing Resolution Professional since it is the Resolution Professional who after examining the relevant material shall make recommendations. Para 7 of the impugned judgment thus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nified the Bank against all losses of the said principal sum, interest or other monies due and all costs charges and expenses whatsoever which the Bank may incur by reason of any default on the part of the Borrower. 14. The Respondent further has issued a recall notice dated 05.03.2018 in respect of the loan given to the Corporate Debtor. Application under Section 7 against the Corporate Debtor - M/s Ess Dee Aluminum Limited has been admitted by the NCLT, Kolkata Bench, Kolkata vide its order dated 14.02.2020 and the Corporate Debtor is already before the Adjudicating Authority facing the insolvency proceedings. The Appellant claims to have acquired citizenship of Singapore on 18.06.2018. 15. From the submissions of learned counsel for the parties following issues arise in the present Appeal: (i) Whether a Personal Guarantee given by the Appellant by Guarantee Deed dated 19.10.2015 shall extinguish, on Appellant, the Personal Guarantor acquiring citizenship of Singapore w.e.f. 18.06.2018? (ii) Whether proceedings under Section 95(1) against the Appellant as a Personal Guarantor could not have been initiated by State Bank of India before the NCLT, Kolkata Bench ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said definition. Section 2 of the Code provides for application of provisions of the Code. By the virtue of Section 2 Sub-clause (e) the code is fully applicable to Personal Guarantors to Corporate Debtors. Section 2(e) provides as follows:- 2. The provisions of this Code shall apply to- x x x (e) personal guarantors to corporate debtors; 21. The Code specifically has been made applicable on the Personal Guarantors of the Corporate Debtors. Whosoever may be the Personal Guarantors of the Corporate Debtor is covered by Section 2(e) of the Code. 22. Now, we come to Section 60 which deals with Adjudicating Authority for Corporate Persons. Section 60(1), (2) and (3) are to the following effect:- 60(1) The Adjudicating Authority, in relation to insolvency resolution and liquidation for corporate persons including corporate debtors and personal guarantors thereof shall be the National Company Law Tribunal having territorial jurisdiction over the place where the registered office of the corporate persons located. (2) Without prejudice to sub-section (1) and notwithstanding anything to the contrary contained in this Code, where a corporate insolvency r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onal guarantors irrespective of the fact as to whether they are Indian citizen or foreign nationals. In event for a Corporate Debtor a personal guarantee has been given by a person who is residing outside of India or is a foreign national, in event personal guarantee is accepted, he shall be bound by the personal guarantee. 24. Further, there is no indication in the statutory scheme that a Personal Guarantor who has given guarantee to a Corporate Debtor can escape from his liability under the Guarantee Deed only for the reason that he has after execution of the Guarantee Deed has obtained citizenship of a foreign country. In event, such Personal Guarantors are allowed to wash off from their obligation under the Guarantee Deed, the easiest way for a Personal Guarantor is to run away out of the country and say that now I am not liable to perform my obligation under the Deed of Guarantee since I am no more Indian citizen. The Adjudicating Authority in the impugned order has very rightly made following observations in above regard:- ex-facie sans rationale, provisions and legislative intent of the Code. If this plea of respondent is accepted, it shall mean allowing a subterfuge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... guarantors to corporate debtors facing insolvency process should also be involved in proceedings by the same adjudicator and for this, necessary amendments were required. Consequently, the 2018 Amendment Act altered Section 2(e) and subcategorized three categories of individuals, resulting in Sections 2(e), (f) and (g). Given that the earlier Notification of 30-11-2016 had brought the Code into force in relation to entities covered under Sections 2(a) to 2(d), the Amendment Act of 2018 provided the necessary statutory backing for the Central Government to apply the Code, in such a manner as to achieve the objective of the amendment, i.e. to ensure that adjudicating body dealing with insolvency of corporate debtors also had before it the insolvency proceedings of personal guarantors to such corporate debtors. 96. The amendment of 2018 also altered Section 60 in that insolvency and bankruptcy processes relating to liquidation and bankruptcy in respect of three categories i.e. corporate debtors, corporate guarantors of corporate debtors and personal guarantors to corporate debtors were to be considered by the same forum i.e. NCLT. 26. At this juncture, we may also notice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f a corporate debtor, as the case may be, situated at any place in a country outside India . Applicability of Section 234 arises only in a case where assets or property of personal guarantor are situated at any place in a country outside India. Present is a case where assets of the Personal Guarantor, as claimed in application under Section 95, are not claimed to situate in any place outside India. Present is not a case where CIRP has been initiated with regard to any of the assets of the Personal Guarantor which are situated outside the country, hence, reliance on Section 234 and 235 are wholly misplaced. In the judgment of Lalit Kumar Jain (Supra) after noticing Sections 234 and 235, Hon ble Supreme Court stated following in Para 106:- These two provisions also reveal that the scheme of the Code always contemplated that overseas assets of a corporate debtor or its personal guarantor could be dealt with in an identical manner during insolvency proceedings, including by issuing letters of request to courts or authorities in other countries for the purpose of dealing with such assets located within their jurisdiction 28. The net result of above discussion is that the De ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9 of the Companies Act, 2013, once a winding-up petition is admitted, the winding-up petition should trump any subsequent attempt at revival of the company through a Section 7 or Section 9 petition filed under the IBC . 30. We, thus, do not find substance in the submission of Shri Mukherjee that for enforcing the liability under the Guarantee Deed Bank should initiate proceedings for specific performance of the contract or initiate arbitration. The statutory scheme of the code does not contain any indication that the Personal Guarantor of a Corporate Debtor can escape from its liability under the Personal Guarantee Deed merely on the ground that he is now started residing in another country and acquired citizenship of another country and is no more an Indian citizen. It is well settled principle of statutory interpretation that such interpretation of a statute should be adopted which makes the statute functional and does not make a statute non-functional. Accepting the submission of Shri Mukherjee shall lead to interpretation which shall defeat the object and purpose of the Code. 31. The submission of Shri Mukherjee that the Adjudicating Authority has acted beyond the sco ..... 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